Mills v. Mutual Building & Loan Ass'n
| Decision Date | 03 January 1940 |
| Docket Number | 521. |
| Citation | 6 S.E.2d 549,216 N.C. 664 |
| Parties | MILLS v. MUTUAL BUILDING & LOAN ASS'N et al. |
| Court | North Carolina Supreme Court |
Civil action for an accounting and to recover damages for breach of trust for wrongful conveyance of real property purchased by defendant corporation at foreclosure sale and resold to an innocent purchaser.
In June, 1924, plaintiff purchased from B. C. Talley a house and lot in Charlotte, subject to a first mortgage lien thereon in favor of the defendant corporation to secure an indebtedness of $3,500 upon which there was then due $2,734.71. There were also outstanding two other mortgage liens in the sum of $1,936.62 and $1,328.67, respectively, which were assumed by the plaintiff. By payments and refinancing, from time to time, the plaintiff reduced the total indebtedness to $2,100. On November 1, 1932, he executed a paper writing in the form of a deed of trust to the defendant E. Y. Keesler, as trustee, to secure a note in that amount, payable to the corporate defendant. There was default in the payment of the regular installments maturing on the last cited note and by reason thereof the trustee after advertisement, foreclosed the instrument by sale May 4 1936, and on May 16, 1936, conveyed said premises, by deed of foreclosure, to the corporate defendant, the purchaser at the sale. On October 8, 1938, the corporate defendant conveyed the premises to C. P. Wood and wife by fee simple deed.
The purchase price at the sale was $1,870. The consideration for the sale to Wood and wife is not disclosed but it does appear that at the time the corporate defendant took a purchase money mortgage, or deed of trust, on the premises in the sum of $3,300.
The defendant Keesler, the trustee named in the instrument dated November 1, 1932, securing the indebtedness of the plaintiff to the corporate defendant, was secretary and treasurer of the corporate defendant in charge of personnel of its office. As such it was his business to handle savings and make loans and he was the active officer in charge of its business. He conducted the sale, as trustee, and entered the bid at the sale for the corporate defendant. At the time he had in his possession the following written memorandum made out in his own handwriting but signed by the assistant secretary to-wit:
The corporate defendant having conveyed the property formerly belonging to the plaintiff to an innocent purchaser, the plaintiff instituted this action to recover rents and profits received, or which should have been received, by the defendants from the date of the foreclosure sale to the date of the conveyance to Wood, during which time the defendants were in possessionthereof, and for damages for the wrongful conversion of his equity in said land.
At the conclusion of the plaintiff's evidence in chief, on motion of the defendants, the Court below entered judgment dismissing the action as of nonsuit. Plaintiff excepted and appealed.
Thaddeus A. Adams and J. Louis Carter, both of Charlotte, for plaintiff, appellant.
H. L. Taylor and Chas. Brenizer, both of Charlotte, for defendants, appellees.
The instrument the plaintiff executed to secure the indebtedness to the corporate defendant contained the following provisions:
The plaintiff contends that the provision permitting the grantee to take possession upon default makes the taking of possession a condition precedent to the right to foreclose. This contention cannot be sustained. Upon default of the mortgagor the mortgagee is entitled to possession. Weathersbee v. Goodwin, 175 N.C. 234, 95 S.E. 491; Montague v. Thorpe, 196 N.C. 163, 144 S.E. 691. The declaration of this right in the instrument does not preclude foreclosure prior to entry and assumption of possession. We do not consider the Massachusetts cases cited by plaintiff binding on us under the laws of this State.
Originally there could be no foreclosure of a mortgage except through a suit in equity. "The idea of allowing the mortgagee to foreclose the equity of redemption, by a sale made by himself, instead of a decree for foreclosure and a sale made under the order of the Court, was yielded to, after great hesitation, on the ground that in a plain case, when the mortgage debt was agreed on and nothing else was to be done except to sell the land, it would be a useless expense to force the parties to come into equity, when there were no equities to be adjusted, and the mortgagor might be reasonably assumed to have agreed to let a sale be made after he should be in default." Kornegay v. Spicer, 76 N.C. 95; Eubanks v. Becton, 158 N.C. 230, 73 S.E. 1009.
The right of the mortgagee to foreclose a power of sale contained in the instrument is now generally accepted. However, as there are many opportunities for oppression in the enforcement of such power, courts of equity are still disposed to scrutinize the exercise thereof for the protection of the mortgagor. Eubanks v. Becton, supra. This right, now, as in the beginning, must be exercised under well recognized restrictions. A mortgagee may not purchase at his own sale; if he does so, he does not acquire an absolute estate. The sale does not alter the relation of mortgagor and mortgagee existing between the parties. Whitehead v. Hellen, 76 N.C. 99; Shew v. Call, 119 N.C. 450, 26 S.E. 33, 56 Am.St.Rep. 678; McLeod v. Bullard, 84 N.C. 515, 531; Howell v. Pool, 92 N.C. 450; Dunn v. Oettinger Bros., 148 N.C. 276, 61 S.E. 679; Rich v. Morisey, 149 N.C. 37, 62 S.E. 762. Such sale is voidable at the election of the mortgagor, Joyner v. Farmer, 78 N.C. 196; Gibson v. Barbour, 100 N.C. 192, 6 S.E. 766; Rich v. Morisey, supra; Owens v. Branning Mfg. Co., 168 N.C. 397, 84 S.E. 389; and may be disavowed by the mortgagor. Austin v. Stewart, 126 N.C. 525, 36 S.E. 37. While the mortgagee, upon default, is entitled to possession as against the mortgagor, Weathersbee v. Goodwin, supra; Montague v. Thorpe, supra, he is responsible to the mortgagor for rents and for all acts and omissions as a tenant, the mortgagor being entitled to credit on the mortgage debt for rents, profits and damages, Morrison v. McLeod, 37 N.C. 108; Green v. Rodman, 150 N.C. 176, 63 S.E. 732; and when the mortgagee has purchased at his own sale and then reconveyed the property to an innocent purchaser the mortgagor may elect to disavow the foreclosure sale and recover damages for the wrongful conversion of his equity of redemption. Warren v. Susman, 168 N.C. 457, 84 S.E. 760; Davis v. Doggett, 212 N.C. 589, 194 S.E. 288.
In the enforcement of these restrictions by courts of equity it has now become well established that although mortgages with power of sale are not looked upon with as much disfavor as they once were, still, courts of equitable jurisdiction will guard the rights of the mortgagor with jealous care and the rule generally prevails that a mortgagee with power to sell is a trustee, and, as such, is not allowed to purchase at his own sale so as to render the sale binding or cut off the equity of redemption. A mortgagee cannot be both vendor and purchaser, and if he purchases at his own sale, he is still a trustee for the mortgagor. It is not of moment that in purchasing he was wholly innocent and free of fraud. 19 R.C.L., Mtges., sec. 425. It is the opportunity for oppression that such conduct presents which invokes the equitable prohibition. Davis v. Doggett, supra.
That it is inequitable to permit a mortgagee to purchase the mortgagor's equity of redemption apparently was first declared (inferentially) by this Court in Lee v. Pearce, 68 N.C. 76, and in express terms in Whitehead v. Hellen, supra. The principle was fully discussed and reaffirmed in McLeod v. Bullard, supra.
The restrictions upon the creditor in respect to the security when the conveyance was made directly to him in the form of a mortgage brought about the creation of deeds of trust as a more acceptable form of conveying real property for security. This form of security has now come into general and, in some instances, universal use. Pomeroy, Eq.Jur., sec. 995; Reynolds v. Waterville, 92 Me. 292, 42 A. 553. When a sale is had under power in this form of security the creditor may bid at the sale, McLawhorn v. Harris, 156 N.C. 107, 72 S.E. 211, 37 L.R.A.,N.S., 831; Hayes v. Pace, 162 N.C. 288, 78 S.E. 290, for, by the intervention of a disinterested third party, the opportunity for oppression is removed.
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